How Credit Affects Your Home Buying Options
Rising property values and shrinking inventories make for a competitive housing market. You’ve probably witnessed homes that initially fell within your home buying budget succumb to a bidding war before vanishing from MLS listings, often within days. It can make you question whether homeownership is possible.
Potential buyers who understand how credit health affects home affordability can take steps to maximize their buying power and act quickly in a seller’s market.
How important is credit?
While it might seem obvious that you’re unlikely to qualify for a loan your income can’t support, buyers are often surprised to learn that their credit health also influences home affordability. Your preferred mortgage program may require a specific income, minimum credit score, and maximum debt load to qualify. But, it’s your credit that can make the difference even without increasing your income or reducing debt obligations. As a result, you could become eligible for a more favorable loan program with a lower interest rate, increased borrowing limit, and better repayment terms.
Perfect credit isn’t necessary to qualify for a home loan, but improving your credit can help ensure you’re eligible for your dream home.
How does credit influence down payment requirements?
Mortgage lenders are typically willing to loan more money to borrowers with a proven repayment history. Your credit history report and credit score are used to predict the likelihood of timely loan repayment. A report that contains missed or delinquent payments directly affects your credit score and, ultimately, your loan approval.
A few late payments may not result in a loan denial, but they could limit your loan options. For example, the lender may require a heftier down payment or approve the loan with a higher interest rate than expected. Either could limit your housing options.
How does credit health influence interest rate options?
Just as a higher credit score can garner lower credit card interest rates, a slight increase in your credit health could shave a half percent or more of interest off of your loan. This may sound small, but the savings over the life of the loan can be significant. Discover how much when you contact a Mortgage Team Member today.
How can I improve my credit?
While you can’t control the housing market, you can control what’s in your credit reports. The information in each report reflects your credit usage.
- Start by ordering copies of your credit reports from each of the three major credit reporting bureaus. Visit annualcreditreport.com to receive them at no cost. You can view them online or have them mailed to your home.
- Each report should include a summary of the items contributing to a less than perfect score. Review the entire report for accuracy. If errors appear, follow the dispute process provided by each bureau.
- Pay down your debts. While you don’t need to be debt-free to qualify for a mortgage, the less debt you have, the lower your credit utilization ratio. Keeping your balances low (less than 30%) can help boost your credit scores.
- Continue to make on-time payments to all of your creditors. Recently missed or past due payments can cause your credit scores to dip, taking months to recover.
Armed with an improved credit rating, you might qualify for a larger loan amount with better terms.
ENB offers First-time Buyer Mortgages that meet your specific needs. We’re here to help you navigate the homebuying process and get you into the home of your dreams soon. A mortgage loan pre-approval can help give you an edge in a competitive housing market. Email or call us at (877) 773-6605 now to discuss your options.